Financial Goal Setting

Basic Budget Timeline

The budget process in public sector organizations share some common characteristics. Most follow these same basic steps:

1. Strategic and Department-Level Planning: This process often begins five to six months prior to the start of the next fiscal year. Program directors, together with department heads and agency directors will need to develop goals and objectives. Ideally, these are connected to the organization's broader strategic plan. At the same time the executive (governor, mayor, city manager, county administrator, chief executive officer, executive director etc) will transmit his or her budget priorities, together with instructions and assumptions, to agency directors and program managers. They'll use budget instructions and assumptions to prepare their budget based on executive priorities and on their own spending needs.

2. Revenue Forecasting: In most instances, revenue forecasting is an ongoing process that starts two to six months prior to the fiscal year, and revised throughout the budget execution phase of the cycle. Revenue officials (treasurer, chief financial officer, finance director, development officer etc) will track economic trends and project revenues for the fiscal year. The final revenue forecast is usually the basis for budgeted revenues. Most states and large local governments have a consensus revenue forecast group comprising executive and legislative staff. Others hire consulting firms that prepare, present, and revise multi-year revenue forecasts.

3. Executive Preparation: Once budgets are submitted to the executive office, budget staff will review departmental and program budget requests and use these budget to prepare the proposed budget. That's not to say that departmental and program budget requests are adopted as is. In fact, department heads and program directors are often asked to present and defend their budgets, especially if budgets are not consistent with the executive's priorities or exceed budgeted allocations.

4. Legislative Review and Adoption: The legislative review process, which often integrates public hearings, begins one to two months prior to the start of the fiscal year. Legislators will review the executive's proposed budget, question department and agency heads about their spending plans, and recommend changes that would be included in the final appropriations bill or approved budget. A vast majority of legislative bodies in government will hold public hearings. For states, hearings are part of the regular budget legislative session. For local governments, budget hearings are typically stand-alone public meetings. For non-profits, these are often closed meetings in which the executive director, or the chair of the finance committee, presents the budget to the board of directors. Budgets are often adopted two to three weeks prior to the start of the fiscal year. Once legislators pass a budget, the governor will sign it, or use the line-item veto to change parts of the legislators' budget and have those changes approved with only a majority vote of the legislature. For city and county governments with a stand-alone mayor or executive, the approval is much like the state. In cases where the executive is appointed, the budget is passed once it is approved.

6. Implementation: Once the budget is approved, department heads and program managers will implement the amended/approved budget over the next twelve months. A majority of organizations anticipate changes in forecasted revenues and budgeted spending. They'll plan for mid-year adjustments, some of which may require formal changes to the adopted budget. The central budget office will closely monitor the execution processes and adjust next year's budget instructions accordingly.

7. Audit and Evaluation: This stage starts at the end of the fiscal year and can take many months depending on the size of the organization, complexity of the jurisdiction's chart of accounts, size and professional skills of budget staff and treasury officers, to name a few. Virtually every organization has to "close its books" and prepare financial statements ahead of a financial audit. They will also engage on evaluation processes on program effectiveness, especially if these were not integrated in the execution phase. The Governmental Accountability Office (GAO) is the audit and evaluation arm of the federal government. It's tasked with "auditing agency operations to determine whether federal funds are being spent efficiently and effectively" and "reporting on how well government programs and policies are meeting their objectives" to name a few.

Revenue vs. Cash flow forecasting

Forecasting has increasingly become an important fiscal planning tool. As the name suggests, to forecast is to "predict or estimate of future events". This is often challenging in volatile economic environments. Finance officers will forecast revenues and incorporate estimates in the proposed and approved budget. For a majority of governments, revenue projections are multi-year forecasts for each unique revenue stream. The proposed or approved budget is then used to create cash flow forecasts – i.e. projections of cash inflows and cash outflows. However, unlike revenue forecasts that are multi-year projections, cash flow forecasts are on a monthly or quarterly basis. Cash flow forecasting is critical, particularly when cash flows are lumpy. For example, cash flows from sales taxes or user fees are monthly, but cash flows from property tax are on a semi-annual basis. Similarly, nonprofits will receive sizeable cash donations year end or following a campaign or special event. Moreover, grants and contracts are frequently on a reimbursement basis. Mangers therefore need to plan when and to what extent they'll draw on existing cash reserves, liquidate investments, tap their line of credit, or issue short-term notes. Conversely, they'll use the cash flow forecast to plan how they'll restore reserves, invest in safe money-market instruments, or payoff short-term debt.